This article was originally written by Kathleen Goolsby and published on SandHill.com.

Dhaval Moogimane, partner at Waterstone Management Group: “In 2016, software companies will face structural challenges that will impact their long-term economics unless they take actions to address them. First is the fact that increasingly savvy customers are wielding more power as software moves to subscription. In response, providers will have to invest more to ensure customers adopt and derive value from their services.

Second, the scale of Amazon and other cloud platforms is making it easier for new entrants to emerge. Also, software has become core to conventional businesses like transportation (Uber), automotive (Tesla), GE Industrial Internet, etc. As such, traditional SW providers could face a wave of non-traditional competitors. All of this will force incumbents to constantly innovate – at a cost. Third, there is an extreme shortage in skilled talent, which will increase hiring and retention costs.

In this highly competitive environment, software providers will need to extend beyond their product-innovation mindset and innovate on their business and operating model. This applies to the way they price, the manner by which they engage with customers at scale, and in the way they manage their sales, hosting and R&D operations. Companies that instill discipline around these practices, granularly track operating performance and drive continuous improvements will be positioned for success.”

Al Ramadan, Chris Lochhead, and Dave Peterson, co-founders and partners, Play Bigger Advisors: “The possibility of constricting venture capital and the lack of new engineering talent in the USA.”

Andrew Atkinson, senior director of product marketing, Cloud Cruiser: “ISVs need to provide greater flexibility with their solutions and how they are deployed especially, given the disruption being caused by cloud with many new projects moving away from on-premises deployment.

Additional risks facing vendors in 2016 are in the form of a major hacking attack against a high-profile target, with repercussions severe enough to chill the broad range of software investments (though it might boost security spending). Given the range and number of breaches over the last year, it is difficult to conceive of an event severe enough to impede continued investments in the software products and services that have become a critical underpinning of the global economy.

Other macro-economic level risks could come in the form of a slowdown in China, which would further erode conditions in Europe.”

Shirish Netke, president and CEO, Amberoon: Business models are the biggest risks. The software licensing plus professional services business model has been under threat for a while. It imposes a huge burden on the software buyers to understand technology that puts their business at unknown risk. This is the equivalent of troubleshooting an IC engine before driving a car when all you need is transportation. Business models that are driven by SLAs and hide complexity under the hood will become table stakes for companies in the future. SaaS is an example.” 

Ron Bianchinipresident and CEO, Avere Systems: I believe there will be two main risks for software vendors in 2016: cloud providers and open source technologies. Cloud is eating traditional software. Even though companies like Amazon, Google and Microsoft are welcoming hybrid integration with vendors, they’re also building their own software specific for their platforms. Ultimately, the goal is to get as much of that revenue share as possible. With open source technology, I only ask this: how can a couple hundred closed-source developers compete with an entire world of contributors? They can’t.”

Sujatha Kashyap, VP of technology, Robin Systems: “Open source. The incisively insightful behavioral economist, Dan Ariely, noted that when we keep social norms and market norms on separate paths, life hums along pretty well. It is when they collide that trouble sets in. The open source revolution is an example of this collision in action. There has been a dramatic shift in the mind of the software buyer, from “you get what you pay for” to “use the open source product with the broadest community support,” making it increasingly difficult for software vendors to charge for their software without making at least some portion of it free or showing community participation.

The battle hasn’t been entirely played out, and there are staunch advocates on either side. However, it is increasingly indisputable that the open source movement has been the biggest revolution to date in the IT industry.

Mike Rozlog, CEO, dbase: Secure code.  Vendors must do as much as possible to ensure their software does not have any backdoors or code that can be exploited.”

Joan Wrabetz, CTO, QualiSystems: The biggest risk for software vendors is to manage the number of different operating environments that we need to support. We have gone from a relatively small number of operating environments (remember when it was just Windows and Linux?) to a wide range of operating environments that work very differently. How do we support OpenStack and KVM, VMware and vSphere, containers like Docker and others, Amazon, Google and bare metal Linux? And when will Microsoft wake up and help any poor software vendor that made the mistake of building on their tools a few years ago?”

Suresh Chandrasekaran, senior vice president, Denodo: “Not having a viable cloud or pay-as-you-go strategy. For large vendors, it may be tempting to delay fixing gaps in their portfolio. They have the market power to push through some of their own products that are not market leading. This is a risk. It would be better to partner with more nimble and innovative companies that offer best-of-breed technologies to fill these gaps and overcome internal resistance. If they don’t, I believe they risk missing some important opportunities.

For smaller vendors, the risk is looking at their products as a one-off. They have to work hard to take ownership for their clients’ overall solution, either through partnering aggressively with both the ecosystem of other software tools and systems integrator in a way that contributes to the holistic client solution and value.”

Darren Cunningham, vice president of marketing, SnapLogic: “With so much hype around the promise of new technologies and disruptive business models, the risk is that the so-called unicorns become ‘unicorpses.’ (I’ve also heard the term ‘dinocorns.’) New technology platforms must demonstrate a fast time to value and quantifiable ROI or they will no longer be relevant.” 

Avinash Lakshman, CEO and founder, Hedvig: “The software industry is vast, and different parts of it will experience different risks. For example, if you’re trying to sell software in a market that has been dominated by hardware solutions – disrupting established technology – then your biggest risk is “guilty until proven innocent.” The customer assumes your software is at fault when it’s most likely a hardware configuration issue. This most often occurs when a customer is trying to adopt a disruptive technology and “just wants to test it.” In these suboptimal environments, every time something goes wrong, the software is blamed. As new technology is introduced into legacy architecture, it will be important for the software industry to be able to help customers with all issues, even if the software is innocent.

Now, given all that, I think 2016 will become the year software-defined infrastructure goes mainstream. The economics are just too compelling. As a result, hardware stops being a solution to IT problems and becomes solely the delivery mechanism. Software is the only truly appreciating IT asset, and companies will invest accordingly.”

James Malachowski, CEO and founder, NodePrime: “Customers will be looking for flexibility when deploying new solutions in order to keep up with business growth and scale on demand.”